A Major Marketing Failure

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this week Blockbuster video was given its just desserts by Arizona
and 46 other states. As the Arizona Daily Star reported,
caring and consumer-minded state attorneys general "charged
that the nation's largest movie-rental chain deceived the
public with advertisements that proclaimed the end of late fees"(emphasis
added). Blockbuster continued to charge fees anyway, but under a
different name. Quoted in the article was Arizona's own Attorney
General, Terry Goddard, who said, "Blockbuster was still charging
its customers a late fee. They were just calling it a u2018restocking
fee'." Isn't it great that so many states have such defenders
of consumer interests? I feel sorry for those four other states.
And, I'm especially proud (beaming, actually) that my attorney general
was mentioned by name.

will be quick to applaud this settlement as a victory for consumers.
And, for that large applauding crowd, those who always bend over,
put their heads between their legs, and ram away into the nether
region whenever thinking is required, especially on economic issues,
I guess it is a victory for consumers. The "bread and circus"
crowd will just belch, pop the top off another beer, kick up their
feet, and get ready to change the channel at the next commercial.
But there is a more rational explanation for Blockbuster's behavior;
it parallels the unfolding of a recent event in the world of politics.

is the victim of "faulty marketing." Someone, somewhere
in the company, or, in some unnamed marketing firm, misinterpreted
data from consumer surveys, feedback forms, and interoffice memos
that passed through the various levels of the corporate bureaucracy,
and concluded that changing "late fees" to "restocking
fees" would make consumers less hostile to the selfish practice
of trying to get borrowers of property under contract to pay a price
for not returning that property by the agreed-upon contracted time.
Perhaps it was the work of independent rogue elements in the marketing
department, eager to make supervisors look foolish to upper management
by bringing scandal upon the reputation of the corporation. Those
inter-corporate rivalries can be so competitive. In any event, Blockbuster
was simply acting on the marketing it had available at the time,
so consumers should just forgive and forget.

familiar? The Commission of the Intelligence Capabilities of the
United States Regarding Weapons of Mass Destruction, in a 600-page
report, announced its foregone conclusion "that the intelligence
community was dead wrong in almost all of its prewar judgments"
regarding Iraq's WMD capabilities. In the most blunt terms, the
report stated: "This was a major intelligence failure."
So what's the logical solution to such "failures" in the
future? Why, increased centralization and even more power!

report identified a "stronger and more centralized management
of the intelligence community, and, in general, the creation of
a genuinely integrated community, instead of a loose confederation
of independent agencies" as the most effective means to avert
such intelligence disasters in the future. Naturally, none of these
findings can be applied to Iranian and North Korean intelligence
gathered by the same "fragmented, loosely managed and poorly
coordinated" intelligence community because it's "classified"
(for our own good, to protect us from evil we cannot see). I guess
we can't take any chances with whatever bad-guy stuff has been found
about those two bad-guy places.

see, these commission members are just like all those AsG looking
out for us simple folk. But what I don't understand, is if it's
okay to recommend centralization in the intelligence community to
maximize effectiveness, why isn't it the same in the movie-rental
business? If concentration of all intelligence-gathering communities
into one centrally-coordinated agency is the cure for future "faulty
intelligence," why isn't the market movement toward increased
centralization in the movie-rental community the cure for "marketing
failures"? Well, it goes back to my earlier point about the
economic ignorance/stupidity of many Americans and their predictable
reaction to issues requiring intellectual challenge.

is more to the Blockbuster issue than the assessing of "restocking
fees." Blockbuster's recent failed attempt to acquire rival
Hollywood Entertainment Corporation has not endeared the movie-rental
giant to government regulators or to American consumers. As the
Star article reports, "Antitrust regulators had raised
objections to the deal, fearing that an even larger Blockbuster
would wield too much power over rental prices." For the average
infantile-minded consumer, the adage drummed into their heads from
way back when they were wee little ones involuntarily flashed on
the telescreen of their minds: monopolies bad when market driven
but good when regulated by the government.

am in no way advocating or defending the actions of Blockbuster.
To my recollection, I've never even rented a movie from any Blockbuster
store. Over the years, I've found that smaller, local, family-owned
rental outfits have had a much better selection of titles, from
new releases to old favorites. What Blockbuster does to its regular
customers to recoup the cost of some people using Blockbuster property
beyond what both parties have agreed to beforehand is none of my
concern, or, should be to other Blockbuster customers who continue
to follow the agreed-upon rules for property exchange entailed in
the simple process of renting a movie.

if it is some kind of monopoly in the crayon and construction paper
minds of some consumers, is a market-driven monopoly. I do
not have to do business with them like I would have to if Blockbuster
was a government monopoly. Unlike a government-driven monopoly,
Blockbuster's actions to punish contract violators on a case-by-case
basis, albeit under a different name, would not affect those customers
who returned the movies they rented when due. Because this is a
market-based transaction, those not violating a policy are exempt
from costs that might accrue to those who do not follow the policy.

not like that in the world of government-driven monopoly transactions.
Take the "transactions" of enforcing drug and anti-terror
laws. Even if I do not use or sell drugs or commit acts remotely
deemed to be acts of "terror," I am still vulnerable to
such laws. Since the government has reserved for itself a monopoly
on law enforcement and force in general, eventually I will be targeted.
One need only look at the history of laws initially implemented
for supposedly narrow purposes, only to be broadened with the passage
of time. There is no escape. If I am not in violation of the laws
now, some energetic lawmaker and/or law enforcement official will
see that I am when I become too troublesome. And the charges against
me, in the eyes of ignorant observers, will be legitimate.

the case of Blockbuster, all of its customers become targets of
higher fees if Blockbuster is forced to abandon charging fees to
those customers who break the contract they signed when membership
was initiated. Instead of specific fees for late returns, maybe
Blockbuster will raise rates for all movie and game rentals to pre-empt
the portion that come back late. Then, the good get nailed with
the stupid and inconsiderate. In any event, consumers who think
this "deceit" on the part of Blockbuster is unforgivable
can rent their movies from another source. How difficult is that?
Instead of cheering and encouraging government to, once again, come
to the defense of the lazy and inconsiderate, perhaps consumers
should just exercise what little market freedom still remains.

the political class is afraid that too much market concentration
under Blockbuster control would mean higher prices. That's always
what the economically ignorant think about all monopolies. They're
in a state of apoplexy, along with the miscreants in the consumer
ranks who want them to act, but for a different reason: they fear
that higher prices might force people to stop renting movies and
maybe start thinking, reading, and observing more. With the armchair
coliseums shut down in greater numbers, perhaps the political class
would become more center stage. Nah, too conspiratorial sounding.
Bad intelligence from the marketing department pushed Blockbuster
to deceive customers. If that's good enough for the government it
should be good enough for Blockbuster.

2, 2005

Goslin [send him mail]
infiltrates the public school system in the cause of liberty and
free markets. As of now, he’s somewhere in Tucson, Arizona.

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